Suppose you have a call option on a stock with a strike price of $22.

1. Fill in the stock price and strike price in the table and calculate the exercise value (10 points)

2. Plot the Stock price on the x-axis and the Exercise value on the y-axis. Be sure to label both axes with titles and include a chart title (10 Points)

Now assume you have the following data for a call option:

Current stock price	Strike price	Time to expiration	Risk-free rate	Stock return standard deviation
$65.00	$71.00	1.0	2.0%	23.00%

3. Fill in the components of the Black-Scholes model and calculate d₁ and d₂ (10 points)

4. Calculate the value of N(d₁) and N(d₂) using the Excel function and find the value of V_C (10 Points)

Now use the binomial option pricing model in conjunction with the following data to value a call option:

Current stock price, P =		$25.00
Risk-free rate, rRF =		2%
Strike price, X =		$20.00
Up factor for stock price, u =		1.2
Down factor for stock price, d =		0.8
Years to expiration, t =		1

5. Calculate the stock price using the binomial model and find the option payoff in each case, in addition to the value of N_S (10 points)

6. Calculate the portfolio payoff in each case and find the present value of the payoff, in addition to the value of the call option (10 Points)

NOTE: Make sure you reference cells or numbers in your Excel file. Do not simply type in the final answers. Points will be deducted if work (i.e., referencing cells) is not shown.

Show formula work.

B D E F G H Stock Price $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 Stock Price Strike Price Exercise Value 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 A) 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 B) 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 A B D E F G H Time to expiration Risk-free rate Stock return standard deviation 53 Current stock price Strike price 54 55 56 c) 57 58 P= 59 60 Os 61 X = 62 63 d,- 64 d, 65 66 D) 67 68 N(d.) - 69 N(d) = 70 VE 71 72 73 74 Current stock price, P = 75 Risk-free rate, 76 Strike price, X = 77 Up factor for stock price, u = 78 Down factor for stock price, d = 79 Years to expiration, t = 80 81 82 E) 83 84 85 86 87 P= 88 89 90 91 92 93 94 = 95 96 Option payoff = C - Ending "up" stock Prices = Ending "down"stock prices Option payoff = C - Ns = B D E F F G H Portfolio payoff 97 F) 98 99 100 101 102 103 P= 104 105 106 107 108 109 Present value of riskless payoff= 110 Ver 112 113 Portfolio payoff 111 B D E F G H Stock Price $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 Stock Price Strike Price Exercise Value 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 A) 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 B) 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 A B D E F G H Time to expiration Risk-free rate Stock return standard deviation 53 Current stock price Strike price 54 55 56 c) 57 58 P= 59 60 Os 61 X = 62 63 d,- 64 d, 65 66 D) 67 68 N(d.) - 69 N(d) = 70 VE 71 72 73 74 Current stock price, P = 75 Risk-free rate, 76 Strike price, X = 77 Up factor for stock price, u = 78 Down factor for stock price, d = 79 Years to expiration, t = 80 81 82 E) 83 84 85 86 87 P= 88 89 90 91 92 93 94 = 95 96 Option payoff = C - Ending "up" stock Prices = Ending "down"stock prices Option payoff = C - Ns = B D E F F G H Portfolio payoff 97 F) 98 99 100 101 102 103 P= 104 105 106 107 108 109 Present value of riskless payoff= 110 Ver 112 113 Portfolio payoff 111